The Case for Hedge Fund Marxism

The international junket jet set is said to be a bunch of
billionaires telling audiences of millionaires how the middle
class lives. Yet on January 18 in Davos, Switzerland, a man
unlikely to be worth much money at all made the case for
millionaires and billionaires to support a revolutionary system
of financial redistribution.

The man was Guy Standing, a professorial research associate
at the University of London and a longtime advocate of
universal basic income. He was, of course, attending the World
Economic Forum Annual Meeting, the uber-conference of the G-6
crowd. Seated on a low stage set for a panel discussion on UBI moderated by the
business editor of the Economist, Standing overwhelmed his
three fellow esteemed panelists with the sheer volume of his
words.

He is perhaps the worlds most outspoken proponent of a
system that would provide a base level of income for all,
regardless of whether or not they work. He co-founded the Basic
Income Earth Network in 1986, a group that promotes the idea,
and has advised various governments on its implementation. If
Standings chest was particularly puffed at Davos, it was
because his lifes work, a very old and, I think, an
extremely radical idea, has come to the fore, according
to the moderator, who cited Ontario, Finland, and various
Scottish and Dutch cities as locales testing the concept.
(Switzerland recently held a vote on starting such a scheme; it
was overwhelmingly defeated, 77 percent to 23 percent.)

In the last couple of years, theres suddenly
been a huge surge of interest, partly by a realization about
automation, Standing replied. I want to stress
thats not my rationale for a basic income  it never
has been  but its quite useful because its
made us much more topical. Instead, Standings
contention is that public wealth is created over generations
and thus should be shared across generations (a variation on
the you didnt build that argument from
Senator Elizabeth Warren and former president Barack Obama).
Plus, he abhors rentier capitalism, a neo-Marxist term for the
parasitic monopolization of resources without benefit to the
public.

The professor then piqued the interest of any asset managers
in Davos. Something like the Alaska Permanent Fund or the
Norwegian fund  had Britain set up the same fund, they
could be paying out more than the basic income now, he
proposed. So what we are arguing [is to] build up a
sovereign wealth fund system by levying it on rental income,
intellectual property, and so on, and couch the debate as
redistributing income as a system and not taxing the worker to
pay a lazy system.

As any hedge fund manager knows, Alaska Permanent and Norges
Bank Investment Management (the Norwegian fund Standing was
referencing) invest huge amounts of capital with alternatives
managers. You would be hard-pressed to find a Connecticut or
London money management baron who disagrees with the idea of
more sovereign wealth funds. So why havent more financial
titans raced to support Standings position?

Taxes, for one. Any redistribution system guaranteeing basic
income for all citizens will surely raise taxes on the rich,
including money managers.

Not so fast, says Charles Murray, a libertarian scholar at
the American Enterprise Institute. According to Murray, scrapping the current
American system of welfare and replacing it with an annual
payment of $10,000 to every adult would actually save money
over the long run. Part of this would stem from the dismantling
of Social Security  which invests solely in Treasuries
 and forcing individuals to plan on their own for
retirement, most likely using the asset management and
insurance industries.

Further proof that the money management industry might
benefit from such redistribution can be found in the Bureau of
Labor Statistics Consumer Expenditure Survey. All else being
equal, if Murrays plan ever reaches fruition (and even he
admits it would likely require a Constitutional amendment
prohibiting nonbasic income social programs), adding
$10,000 to every adults income each year would likely
increase the amounts directed to invested retirement and
insurance general accounts. As the annual survey shows, a
household of two adults making $24,000 currently spends 2
percent of income on retirement accounts, 3.1 percent on
insurance, and 2 percent on Social Security and pensions. If
they were given the additional capital and if their behavior
remained consistent with their new cohort (a big if), these
figures would rise to 5.1, 5.6, and 5.1 percent  a total
of 15.8 percent, doubling the assets potentially flowing into
the pockets of mutual funds, target date funds, and ETFs.

The impact of such a monumental transformation of the
welfare state as proposed by Standing and Murray  two men
at opposite ends of the political spectrum  would, of
course, cause entirely unpredictable outcomes. Taxes at the top
end could rise (although Murray doesnt think so);
individual investment risk appetite could change dramatically
(but logic suggests it would increase, given the overt safety
net); retirement savings might become less of a focus, given
the guaranteed income in place for life (yet the $10,000 that
Murray proposes would be an uncomfortable retirement).

But even with these large grains of salt, it is not hard to
believe that the asset management industry  and the many
wealthy people working within it  might benefit from such
a system. Capital may flow to the alternative-investment
billionaires who work with the likes of Alaska Permanent,
Norges Bank, or whatever new sovereign funds would emerge out
of the reforms. It may flow to the lower-cost, retail
investment millionaires at more traditional long-only shops.
But unless theres been a serious miscalculation by men
such as Murray and Standing, the money will flow somewhere.
Perhaps, then, a panel suggestion for the 2018 Davos agenda:
The Case for Hedge Fund Marxism.

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